BC NDP housing plan, is it a good plan?
The NDP plan is to offer to help people who may not be able to get into the housing market. The plan is to be the bank and offer a mortgage for 40% of the property price. This would be paid back when the property is sold and the increased value is achieved. Is the NDP suggesting they are becoming real estate speculators? The NDP suggests that the down payment and monthly payments will be lower. How will this help people buying a house?.
Lower payments for housing doesn’t lead to home ownership. It only leads to longer payments to pay off debt. If the government is lending 40% of the funds they are then becoming the bank and will only see the full payment of these funds when the house is paid off. This will happen when the homeowner pays off the mortgage, in Canada less than 50% of homeowners fully pay off their mortgage before they sell their property. The NDP says the government loan will be paid when the home is sold and the government will receive 40% of the increased value of the property.
They are speculating that the home’s value will have increased at the time the homeowner chooses to sell the property. In general housing increases in value, though there are times when people need to sell the property at a time when the market is less than or has not increased since they purchased the property. Today is a good example of that, people who bought in the peak of covid and for some reason are being required to sell now are seeing losses on their purchases. Selling of a house incurs many different costs during the process. Under this plan when the home sells, will the NDP take their 40% first, then the homeowner will lose a larger portion of the home’s equity if it is sold at a lower level. What happens if the value has decreased and the homeowner owes the government will the government share in the loss or will the owner be required to pay the full 40% back?
After the property is sold by the original purchaser, will the property then re-entered into the regular housing market. If this is the case and the homeowner is leaving this location with only 60% of the equity or less it may still be difficult for the homeowner to buy in the regular housing market. They will need to save up the additional 40% or qualify for the larger amount of a new mortgage while they are trying to pay off the other home.
The program is suggested to be for first time home owners and people who are currently renting. This leaves a large segment of the population that can’t afford housing and could benefit from a program like this excluded from participating. People like single parents who are divorced and struggling to afford housing.
Will this program bring housing prices down or stabalize the housing market long term.
For a program like this to be beneficial it will need to be an annual program for many years to affect the housing market, and as governments change programs of this type are often cancelled and will disappear. These new houses will provide homeownership for some segments of the population for a short period of time and eventually these products will all end up back in the regular housing market. Will people who buy these homes be allowed to rent them out?
A better solution would be to annually build more purpose built rental housing and co-operative housing. The federal government subsidised the building of rental housing in the sixties and many of those budildings are still operating in today’s market. When the rental housing market is stable, so is the housing market. Many markets in Canada have used only one type of housing which is homeownership to meet the needs of their population.
We have created a culture that has convinced young people that the first thing they need to do is buy property. People used to buy a home for their family to live in, now they buy a property that has the best resale value. Investing in the development of more rental homes across the country allows for people to migrate to new locations easier for work as they don’t need to make a large commitment and expenditure. With purpose built rental properties the product never leaves the rental market. During covid home sales were excessive and a number of properties that were part of the rental market left reducing the rental stock and significantly putting upward pressure on rental prices.
If the government wants to help with ownership I would be more infavour of them helping to build more cooperative type housing as well. This type of housing is non market housing which aslo creates a stable living environment for people at less cost of ownership. This plan sounds like a comparison to the co-op programs except that the homes can be sold and re-enter the housing market. Cooperative housing like rental housing doesn’t change its status.
There are many other things governments can try to keep housing costs affordable, including making it more difficult for invenstors to puchase multiple properties. Eliminate corporations from buying single family homes enmasse. Reducing the cost of living generally so people can afford to buy a home and many other things in life.
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